Monday’s Vital Data: Johnson & Johnson, Costco and Adobe

U.S. stock futures are trading lower this morning extending the losses that ushered equities into the weekend. With Christmas a short one week a way it’s do or die time for buyers to mount a comeback.

Monday’s Vital Data Options Trading: Johnson & Johnson, Costco and AdobeAhead of the bell, futures on the Dow Jones Industrial Average are down 0.58% and S&P 500 futures are lower by 0.46%. Nasdaq-100 futures have shed 0.45%.

In the options pits, fear came to town, lifting demand for put options. Overall volume levels rallied on the day even though they remained far below their recent panic-induced heights. Specifically, about 17.7 million calls and 19.3 million puts changed hands on the session.

The jitters were felt over at the CBOE, with the single-session equity put/call volume ratio rising to 0.79. Though not the highest spike, the current surge places the reading close to previous peaks. The 10-day moving average continued its climb by rising to 0.69.

Here were three stocks atop the most-actives list. Johnson & Johnson (NYSE:JNJ) plunged after a Reuters report revealed the company knew about having asbestos in its baby powder. Meanwhile, Costco (NASDAQ:COST) and Adobe (NASDAQ:ADBE) both fell on disappointing earnings results.

Let’s take a closer look:

Johnson & Johnson (JNJ)

Consumer goods giant, Johnson & Johnson, saw its share price suffer its largest one-day loss since 2002. On Friday J&J crashed 10% amid panic-level volume following an explosive Reuters report showing the company knew its powder “was sometimes tainted with carcinogenic asbestos.”

Support levels melted in the face of the widespread selling, though buyers ultimately prevailed at the 200-day moving average. With the backbone of JNJ’s daily uptrend now broken, bulls should steer clear until the dust settles.

On the options trading front, puts dominated the session. Activity rocketed to 1,287% of the average daily volume, with 381,780 total contracts traded. 61% of the trading came from put options alone.

Implied volatility soared to 33%, placing it at the 100th percentile of its one-year range. Inflated premiums are now pricing in daily moves of $2.73 or 2.1%. With risk perception now in the stratosphere, options sellers are receiving more compensation than at any time this year.

Costco (COST)

Warehouse retailer Costco suffered its second straight post-earnings down-gap on Friday. The 8.6% plunge inflicted massive technical damage to its price chart.

Despite earnings per share rising from $1.45 to $1.73 and sailing past estimates of $1.65, it was the narrowing of margins and a mild drop in operating income that ruled the day. Increased competition from fellow grocers and additional investments in e-commerce are being blamed for last quarters shrinking margin.

On the options trading front, calls outpaced puts despite the outsized price decline. Activity swelled to 681% of the average daily volume, with 110,509 total contracts traded. Calls accounted for 56% of the day’s total.

The typical post-earnings volatility crush was nowhere to be seen on Friday. Due to the dramatic price descent, volatility expectations remain lofty. Implied volatility sits at 28% or the 62nd percentile of its one-year range. Options are pricing in daily moves of $3.66 or 1.8%.

Adobe (ADBE)

Adobe stepped up to the earnings plate and ultimately left investors unimpressed. The software giant reported $1.90 earnings per share (which excluded certain items) on revenue of $2.46 billion.

The stock’s slide was likely exacerbated by widespread selling in the broader market on Friday. By day’s end, ADBE stock was down 7.3% amid heavy distribution. With the stock now submerged beneath all major moving averages, bears hold the upper hand.

On the options trading front, calls were active on the session. Activity lifted to 376% of the average daily volume, with 96,721 total contracts traded. Calls contributed 57% of the day’s take.

With earnings now in the rearview mirror, implied volatility fell on the day to 40% or the 56th percentile of its one-year range. Premiums are now pricing in daily moves of $5.77 or 2.5%.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.

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